SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-13348
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BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3314331
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 267-1600
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
<PAGE>
BALCOR EQUITY PENSION INVESTORS - II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1995 and December 31, 1994
(Unaudited)
ASSETS
1995 1994
------------ ------------
Cash and cash equivalents $ 24,808,002 $ 17,106,496
Accounts and accrued interest receivable 695,487 762,066
Prepaid expenses 576,659 81,915
Deferred expenses, net of accumulated
amortization of $924,032 in 1995 and
$743,106 in 1994 762,981 758,205
Investment in joint venture with an affiliate 1,453,661 1,482,721
------------ ------------
28,296,790 20,191,403
------------ ------------
Investment in loan receivable 7,540,986
Loan application and processing fees, net of
accumulated amortization of $211,843 in 1994 50,232
------------
7,591,218
------------
Investment in real estate:
Land 26,808,775 26,808,775
Buildings and improvements 108,441,452 108,250,048
------------ ------------
135,250,227 135,058,823
Less accumulated depreciation 41,592,718 39,168,092
------------ ------------
Investment in real estate, net of accumulated
depreciation 93,657,509 95,890,731
------------ ------------
$121,954,299 $123,673,352
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1995 and December 31, 1994
(Unaudited)
(Continued)
LIABILITIES AND PARTNERS' CAPITAL
1995 1994
------------ ------------
Accounts payable $ 198,173 $ 374,107
Due to affiliates 35,174 124,539
Accrued liabilities, principally real estate
taxes 482,071 415,971
Security deposits 471,910 434,623
------------ ------------
Total liabilities 1,187,328 1,349,240
Affiliates' participation in joint ventures 17,134,801 17,430,588
Partners' capital (939,587 Limited Partnership
Interests issued and outstanding) 103,632,170 104,893,524
------------ ------------
$121,954,299 $123,673,352
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
------------ ------------
Income:
Rental income $ 13,417,322 $ 12,869,429
Service income 1,508,946 1,616,158
Interest on short-term investments 823,795 528,987
Interest on loan receivable - first mortgage,
net of amortization of $50,232 in 1995
and $19,654 in 1994 392,298 458,895
Participation in income (loss) of joint
venture with an affiliate 70,555 (14,833)
------------ ------------
Total income 16,212,916 15,458,636
------------ ------------
Expenses:
Depreciation 2,424,626 2,398,846
Amortization of deferred expenses 180,926 185,765
Property operating 5,103,101 5,605,996
Real estate taxes 1,534,999 1,279,226
Property management fees 517,056 538,742
Administrative 739,346 647,472
Provision for loan receivable writedown 768,066
------------ ------------
Total expenses 11,268,120 10,656,047
------------ ------------
Income before affiliates' participation in
joint ventures 4,944,796 4,802,589
Affiliates' participation in income from
joint ventures (949,199) (784,176)
------------ ------------
Net income $ 3,995,597 $ 4,018,413
============ ============
Net income allocated to General Partner $ 672,349 $ 604,439
============ ============
Net income allocated to Limited Partners $ 3,323,248 $ 3,413,974
============ ============
Net income per Limited Partnership Interest
(939,587 issued and outstanding) $ 3.54 $ 3.63
============ ============
Distributions to General Partner $ 525,696 $ 525,696
============ ============
Distributions to Limited Partners $ 4,731,255 $ 4,731,255
============ ============
Distributions per Limited Partnership interest:
Taxable $ 3.90 $ 3.90
============ ============
Tax - exempt $ 5.19 $ 5.19
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1995 and 1994
(Unaudited)
1995 1994
------------ ------------
Income:
Rental income $ 4,552,017 $ 4,067,532
Service income 477,498 507,656
Interest on short-term investments 289,217 206,388
Interest on loan receivable - first mortgage,
net of amortization of $37,127 in 1995 and
$6,549 in 1994 86,368 152,965
Participation in income (loss) of joint
venture with an affiliate 16,354 (10,324)
------------ ------------
Total income 5,421,454 4,924,217
------------ ------------
Expenses:
Depreciation 808,208 799,617
Amortization of deferred expenses 65,801 72,966
Property operating 1,924,780 2,322,891
Real estate taxes 461,480 487,721
Property management fees 170,127 172,525
Administrative 238,510 158,582
Provision for loan receivable writedown 768,066
------------ ------------
Total expenses 4,436,972 4,014,302
------------ ------------
Income before affiliates' participation in
joint ventures 984,482 909,915
Affiliates' participation in income from
joint ventures (269,873) (139,704)
------------ ------------
Net income $ 714,609 $ 770,211
============ ============
Net income allocated to General Partner $ 208,842 $ 145,366
============ ============
Net income allocated to Limited Partners $ 505,767 $ 624,845
============ ============
Net income per Limited Partnership Interest
(939,587 issued and outstanding) $ 0.54 $ 0.66
============ ============
Distribution to General Partner $ 175,232 $ 175,232
============ ============
Distribution to Limited Partners $ 1,577,085 $ 1,577,085
============ ============
Distribution per Limited Partnership interest:
Taxable $ 1.30 $ 1.30
============ ============
Tax - exempt $ 1.73 $ 1.73
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
------------ ------------
Operating activities:
Net income $ 3,995,597 $ 4,018,413
Adjustments to reconcile net income to net
cash provided by operating activities:
Affiliates' participation in income from
joint ventures 949,199 784,176
Participation in (income) loss of joint
venture with an affiliate (70,555) 14,833
Depreciation of properties 2,424,626 2,398,846
Amortization of deferred expenses 180,926 185,765
Amortization of loan application and
processing fees 50,232 19,654
Provision for loan receivable writedown 768,066
Net change in:
Accounts and accrued interest receivable 66,579 181,511
Prepaid expenses (494,744) (263,328)
Accounts payable (175,934) (563,050)
Due to affiliates (89,365) 98,080
Accrued liabilities 66,100 101,622
Security deposits 37,287 47,381
------------ ------------
Net cash provided by operating activities 7,708,014 7,023,903
------------ ------------
Investing activities:
Capital contributions to joint venture with
an affiliate (45,065)
Distributions from joint venture with an
affiliate 99,615 17,999
Collection of principal payments on loan
receivable 6,772,920
Improvements and additions to properties (191,404) (374,422)
Payment of deferred expenses (185,702) (282,776)
------------ ------------
Net cash provided by or used in investing
activities 6,495,429 (684,264)
------------ ------------
Financing activities:
Distributions to Limited Partners (4,731,255) (4,731,255)
Distributions to General Partner (525,696) (525,696)
Distributions to joint venture partners -
affiliates (1,244,986) (1,475,952)
------------ ------------
Cash used in financing activities (6,501,937) (6,732,903)
------------ ------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1995 and 1994
(Unaudited)
(Continued)
1995 1994
------------ ------------
Net change in cash and cash equivalents 7,701,506 (393,264)
Cash and cash equivalents at beginning of period 17,106,496 17,153,575
------------ ------------
Cash and cash equivalents at end of period $ 24,808,002 $ 16,760,311
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
Several reclassifications have been made to the previously reported 1994
statements to conform with the classifications used in 1995, including mortgage
servicing fees which have been reclassified and are included in administrative
expenses during 1995. These reclassifications have not changed the 1994
results. In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the nine months
and quarter ended September 30, 1995, and all such adjustments are of a normal
and recurring nature.
2. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1995 are:
Paid
-----------------------
Nine Months Quarter Payable
------------ --------- ---------
Mortgage servicing fees $ 15,192 $ 3,798 None
Reimbursement of expenses to
the General Partner, at cost 279,321 36,001 $35,174
3. Subsequent Event:
In October 1995, the Partnership made a distribution of $1,577,085 ($1.30 per
Taxable Interest and $1.73 per Tax-exempt Interest) to the holders of Limited
Partnership Interests for the third quarter of 1995.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Equity Pension Investors-II A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1984 to make first mortgage
loans and to invest in and operate income-producing real property. The
Partnership raised $234,896,750 through the sale of Limited Partnership
Interests and utilized these proceeds to fund seven loans and acquire five real
property investments and a minority joint venture interest in one additional
real property. From 1987 through 1993, the Partnership acquired three
properties through foreclosure on loans and accepted prepayments on three
additional loans. In September 1995, the Partnership accepted a prepayment on
the Colonial Coach and Castlewood West loan. As of September 30, 1995, the
Partnership has no loans, and operates eight properties and holds a minority
joint venture interest in an additional property.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1994 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
The Partnership generated higher income as a result of improved operations at
certain of its properties during 1995. However, the Partnership recognized a
provision for loan receivable write-down in connection with the prepayment of
the Colonial Coach and Castlewood West loan at a discount in September 1995,
which offset these improvements. The combined effect of these events resulted
in a slight decrease in net income for the quarter and nine months ended
September 30, 1995 as compared to the same periods in 1994. Further discussion
of the Partnership's operations is summarized below.
1995 Compared to 1994
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1995 and 1994 refer
to both the quarter and nine months ended September 30, 1995 and 1994.
Primarily as a result of higher rental rates and higher occupancy at the 1275 K
Street office building and higher rental rates at the Westech 360 office
building, rental income increased during 1995 as compared to 1994.
Additionally, because both of these properties are owned through joint ventures
with affiliates, the affiliates' participation in income of joint ventures
increased during 1995 as compared to 1994.
Higher interest rates resulted in an increase in interest income on short-term
investments during 1995 when compared to 1994.
<PAGE>
In connection with the Colonial Coach and Castlewood West loan prepayment in
September 1995, the Partnership fully amortized the remaining loan application
and processing fees, resulting in decreased interest income on loan receivable
during 1995 as compared to 1994.
Participation in income (loss) of joint venture with an affiliate reflects the
Partnership's share of property operations at the Pacific Center office
buildings. Due to a decrease in expenses related to leasing activity, the
Partnership recognized participation in income of joint venture with an
affiliate during 1995 as compared to participation in loss during 1994.
Primarily as a result of a decrease in expenses related to leasing activity at
the 100 Ashford Center office building, property operating expenses decreased
during 1995 as compared to 1994.
A refund of 1992 taxes was received in the first quarter of 1994 from the local
taxing authority for the 1275 K Street office building due to a decrease in the
assessed tax value of this property. This refund resulted in lower real estate
tax expense during the nine months ended September 30, 1994 as compared to the
same period in 1995.
As a result of higher investor processing costs and legal fees, administrative
expenses increased for 1995 as compared to 1994.
In September 1995, the Partnership accepted a discounted prepayment on the
Colonial Coach and Castlewood West loan receivable. As a result, the
Partnership recognized a provision of $768,066 for loan receivable write-down.
Liquidity and Capital Resources
- ------------------------------
The cash position of the Partnership increased as of September 30, 1995 as
compared to December 31, 1994, due primarily to the prepayment of the Colonial
Coach and Castlewood West loan receivable.
During the nine months ended September 30, 1995 and 1994, all of the
Partnership's properties, including the Pacific Center office buildings, in
which the Partnership holds a minority joint venture interest, generated
positive cash flow. The Partnership defines cash flow generated from its
properties as an amount equal to the property's revenue receipts less property
related expenditures.
As of September 30, 1995, occupancy rates at the Partnership's commercial
properties ranged from 85% to 100%, while the occupancy rate of Spalding Bridge
Apartments was 97%. Many rental markets continue to remain extremely
competitive; therefore, the General Partner's goals are to maintain high
occupancy levels while increasing rents where possible and to monitor and
control operating expenses and capital improvement requirements at the
properties.
In October 1995, the Partnership paid $1,577,085 ($1.30 per Taxable Interest
and $1.73 per Tax-exempt Interest) to Limited Partners representing the
quarterly distribution for the third quarter of 1995. The level of this
distribution was consistent with the amount distributed to Limited Partners for
the previous quarter. In addition, during October 1995, the Partnership paid
$131,424 to the General Partner, representing its quarterly distribution for
the third quarter of 1995 and made a contribution of $43,808 to the Repurchase
<PAGE>
Fund. To date, including the October 1995 distribution, Limited Partners have
received distributions aggregating approximately $104 per $250 Taxable
Interest, of which $78 represents Net Cash Receipts and $26 represents Net Cash
Proceeds, and $130 per $250 Tax-exempt Interest, of which $104 represents Net
Cash Receipts and $26 represents Net Cash Proceeds. The General Partner expects
that the cash flow from property operations should enable the Partnership to
continue making quarterly distributions to Limited Partners. However, the level
of future distributions will be dependent on the amount of cash flow generated
from property operations, as to which there can be no assurances.
During the nine months ended September 30, 1995, the General Partner, on behalf
of the Partnership, used amounts placed in the Repurchase Fund to repurchase
1,117 Interests from Limited Partners at a cost of $273,245.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(4) Forms of Subscription Agreements, previously filed as Exhibits 4.1.1 and
4.1.2 to Amendment No. 2 dated September 20, 1984 to the Registrant's
Registration Statement (Registration No. 2-91810) and to Amendment No. 1 dated
January 25, 1985 to the Registrant's Registration Statement (Registration No.
2-95409) and Form of Confirmation regarding Interests in the Registrant set
forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1992 (Commission File No. 0-13348) are incorporated herein by
reference.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Equity Partners-II, the General Partner
By: /s/Brian D. Parker
------------------------------
Brian D. Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Equity Partners-II, the
General Partner
Date: November 13, 1995
-------------------------------
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 24808
<SECURITIES> 0
<RECEIVABLES> 695
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26080
<PP&E> 135250
<DEPRECIATION> 41593
<TOTAL-ASSETS> 121954
<CURRENT-LIABILITIES> 1187
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 103632
<TOTAL-LIABILITY-AND-EQUITY> 121954
<SALES> 0
<TOTAL-REVENUES> 15264
<CGS> 0
<TOTAL-COSTS> 7155
<OTHER-EXPENSES> 3345
<LOSS-PROVISION> 768
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3996
<INCOME-TAX> 0
<INCOME-CONTINUING> 3996
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<CHANGES> 0
<NET-INCOME> 3996
<EPS-PRIMARY> 3.54
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